UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

[X]      Annual  Report  Pursuant  to  Section  13 or 15 (d)  of the  Securities
         Exchange Act of 1934 for the fiscal year ended June 30, 2006

[ ]      Transition  Report  Pursuant to Section 13 or 15 (d) of the  Securities
         Exchange Act of 1934. For the transition period from to

                           Commission File No. 1-4383

                         ESPEY MFG. & ELECTRONICS CORP.
                         ------------------------------
             (Exact name of registrant as specified in its charter)

                   NEW YORK                              14-1387171
                   --------                              ----------
       (State or other jurisdiction of               (IRS Employer
        incorporation or organization)               Identification No.)

                 233 Ballston Avenue, Saratoga Springs, NY 12866
                 -----------------------------------------------
          (Address of principal executive offices including Zip Code)

        (Registrant's telephone number including area code) (518)245-4400
                                                             ------------

                                                   Name of Each Exchange
            Title of Each class                    on Which Registered
            -------------------                    -------------------
       Common Stock $.33-1/3 par value             American Stock Exchange
       Common Stock Purchase Rights                American Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to the filed by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during  the  preceding  12  months,  and (2) has  been  subject  to such  filing
requirements for the past 90 days.
         [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB.
         [X] Yes [ ] No

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).
         [ ] Yes [X] No

Revenues for fiscal year ended June 30, 2006 were $20,851,570.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  was  $23,397,251  based upon the closing sale price of $16.70 on the
American Stock Exchange on June 30, 2006.

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

                       Class                   Outstanding at September 25, 2006
                      -------                  ---------------------------------
         Common stock, $.33-1/3 par value                2,309,396 shares


1
<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  registrants  definitive  proxy  statement  relating to the 2006
Annual  Meeting of  Shareholders,  to be filed with the  Securities and Exchange
Commission,  are  incorporated  by reference in Part III, Items 10 through 14 on
Form 10-KSB as indicated herein.

Forward-Looking Statements

This Annual Report on Form 10-KSB contains  forward-looking  statements that are
based on management's  expectations,  estimates,  projections  and  assumptions.
Words  such  as  "expects,"  "anticipates,"  "plans,"  "believes,"  "scheduled,"
"estimates"  and variations of these words and similar  expressions are intended
to identify  forward-looking  statements.  Forward-looking  statements  are made
pursuant to the safe harbor  provisions  of the  Private  Securities  Litigation
Reform Act of 1995, as amended.  These  statements  are not guarantees of future
performance  and involve certain risks and  uncertainties  that are difficult to
predict.  Therefore, actual future results and trends may differ materially from
what is  forecast  in  forward-looking  statements  due to a variety of factors,
including, without limitation:
      o  Changing priorities in the U.S.  government's defense budget (including
         changes in  priorities  in response to terrorist  threats or to improve
         homeland security);
      o  Termination  of  government  contracts  due  to  unilateral  government
         action;
      o  Differences in anticipated  and actual program  performance,  including
         the ability to perform under  long-term  fixed-price  contracts  within
         estimated  costs,  and  performance   issues  with  key  suppliers  and
         subcontractors;
      o  Potential for changing prices for energy and raw materials.

All  forward-looking  statements speak only as of the date of this report or, in
the case of any document  incorporated by reference,  the date of that document.
All subsequent written and oral forward-looking  statements  attributable to the
Company or any  person  acting on the  Company's  behalf  are  qualified  by the
cautionary  statements  in this  section.  The Company  does not  undertake  any
obligation  to update or  publicly  release  any  revisions  to  forward-looking
statements to reflect events, circumstances or changes in expectations after the
date of this report.

                                     PART I
Item 1.  Business

General

Espey Mfg. & Electronics Corp. (the "Company") located in Saratoga Springs,  New
York, is engaged principally in the development,  design, production and sale of
specialized  electronic power supplies, a wide variety of transformers and other
types of iron-core components,  and electronic system components. In some cases,
the  Company   manufactures  such  products  in  accordance  with  pre-developed
mechanical and electrical  requirements  ("build to print"). In other cases, the
Company  is  responsible  for both the  overall  design and  manufacture  of the
product. The Company does not generally manufacture standardized components. The
Company operates a one-segment business and was incorporated in 1928.

The electronic  power supplies and components  manufactured  by the Company find
application principally in (i) shipboard and land based radar, (ii) locomotives,
(iii)  aircraft,   (iv)  short  and  medium  range  communication  systems,  (v)
navigation systems and (vi) land based military vehicles.

The Company's iron-core  components include (i) transformers of the audio, power
and  pulse  types,  (ii)  magnetic  amplifiers  and  (iii)  audio  filters.  The
electronic system components manufactured by the Company include antenna systems
and high power radar transmitters. These system components utilize the Company's
own electronic power supplies,  transformers and other iron-core  components and
mechanical assemblies.

In the fiscal years ended June 30, 2006 and 2005, the Company's total sales were
$20,851,570 and  $18,828,700,  respectively.  Sales to three domestic  customers
accounted  for 35%,  17% and 13% of total sales in 2006.  Sales to two  domestic
customers accounted for 32% and 14% of total sales in 2005.

Export  sales in 2006 and 2005 were  approximately  $3,392,000  and  $4,946,000,
respectively.


2
<PAGE>

Sources of Raw Materials

The Company has never experienced any significant delay or shortage with respect
to the purchase of raw materials and components  used in the  manufacture of its
products, and has at least two potential sources of supply for a majority of its
raw materials.  However,  certain  components used in our products are available
from only a limited number of sources,  and other  components are only available
from a single source.  Despite the risk associated with limited or single source
suppliers, the benefits of higher quality goods and timely delivery minimize and
often limit any  potential  risk and can  eliminate  problems with part failures
during production.

Sales Backlog

At September 21, 2006, the Company's  backlog was  approximately  $36.5 million.
The total backlog at June 30, 2006 was  approximately  $37.7 million as compared
to  approximately  $31.8 million at June 30, 2005.  The Company's  total backlog
represents  the estimated  remaining  sales value of work to be performed  under
firm  contracts.  The Company's  backlog and risks  associated  with  government
contracts is discussed in greater detail in Management's Discussion and Analysis
of Financial Condition and Results of Operations, contained in Item 7 below.

It is presently  anticipated that a minimum of $24 million of orders  comprising
the June 30, 2006 backlog will be filled  during the fiscal year ending June 30,
2007.  The minimum of $24 million does not include any  shipments,  which may be
made against orders subsequently received during the fiscal year ending June 30,
2007.  The estimate of the June 30, 2006 backlog to be shipped in fiscal 2007 is
subject to future  events,  which may cause the amount of the  backlog  actually
shipped to differ from such estimate.

Marketing and Competition

The  Company  markets  its  products  primarily  through  its own  direct  sales
organization.  Business is solicited  from large  industrial  manufacturers  and
defense companies,  the government of the United States and foreign  governments
and major  foreign  electronic  equipment  companies.  In certain  countries the
Company has  external  sales  representatives  to help  solicit  and  coordinate
foreign  contracts.  The Company is also on the eligible list of  contractors of
many  agencies  of the United  States  Department  of Defense and  generally  is
automatically  solicited by such agencies for  procurement  needs falling within
the major classes of products produced by the Company.

There is  competition  in all classes of products  manufactured  by the Company,
including from divisions of the largest  electronic  companies,  as well as many
small companies. The Company's sales do not represent a significant share of the
industry's  market  for any class of its  products.  The  principal  methods  of
competition  for electronic  products of both a military and  industrial  nature
include, among other factors, price, product performance,  the experience of the
particular company and history of its dealings in such products. The Company, as
well as other  companies  engaged in supplying  equipment  for military  use, is
subject to various risks, including, without limitation,  dependence on U.S. and
foreign government  appropriations and program allocations,  the competition for
available   military  business,   and  government   termination  of  orders  for
convenience.

The Company's business is not considered to be seasonal in nature.

Research and Development

The  Company's  expenditures  for research and  development  were  approximately
$121,000  and  $187,000 in 2006 and 2005,  respectively.  Some of the  Company's
engineers and technicians spend varying degrees of time on either development of
new products or improvement of existing products.

Employees

The Company had 175 employees as of September 21, 2006.  Some of these employees
are  represented by the  International  Brotherhood of Electrical  Workers Local
#1799. The current collective bargaining agreement expires on June 30, 2008. The
contract  includes a 3.75% annual pay increase in the fiscal period 2006 through
2007, and no increase for 2008.  Relations  with the Union are considered  good.
Union membership at September 21, 2006 was 74 people.


3
<PAGE>

Government Regulations

Compliance  with federal,  state and local  provisions that have been enacted or
adopted  to  regulate  the  discharge  of  materials  into the  environment,  or
otherwise relating to the protection of the environment, did not in fiscal 2006,
and the Company  believes will not in fiscal year 2007,  have a material  effect
upon the  capital  expenditures,  net  income,  or  competitive  position of the
Company.

The Company's  U.S.  government  contract and  subcontract  orders are funded by
government  budgets,  which operate on an  October-to-September  fiscal year. In
February  of each year,  the  President  of the United  States  presents  to the
Congress a proposed  budget for the upcoming  fiscal year.  This budget includes
recommended  appropriations for every federal agency and is the result of months
of policy and program  reviews  throughout the executive  branch.  From February
through September of each year, the appropriations and authorization  committees
of Congress  review the President's  budget  proposals and establish the funding
levels  for  the  upcoming  fiscal  year  in  appropriations  and  authorization
legislation. Once these levels are enacted into law, the Executive Office of the
President administers the funds to the agencies.

There are two primary risks associated with this process. First, the process may
be delayed or disrupted  because of congressional  schedules,  negotiations over
funding levels for programs or unforeseen  world events,  which could,  in turn,
alter the  funding for a program or  contract.  Second,  funding for  multi-year
contracts can be changed by future appropriations, which could affect the timing
of funds, schedules and program content.

Also,  our  international  sales  are  denominated  in United  States  currency.
Consequently, changes in exchange rates that strengthen the United States dollar
could increase the price in local  currencies of our products in foreign markets
and make our products relatively more expensive than competitor's products.

U.S. Government Defense Contracts and Subcontracts

Generally,  U.S.  government  contracts  are  subject  to  procurement  laws and
regulations.  Some  of the  Company's  contracts  are  governed  by the  Federal
Acquisition Regulation (FAR), which lays out uniform policies and procedures for
acquiring  goods  and  services  by the  U.S.  government,  and  agency-specific
acquisition  regulations that implement or supplement the FAR. For example,  the
Department of Defense implements the FAR through the Defense Federal Acquisition
Regulation (DFAR).

The FAR also contains  guidelines and  regulations for managing a contract after
award, including conditions under which contracts may be terminated, in whole or
in part,  at the  government's  convenience  or for  default.  If a contract  is
terminated for the  convenience of the  government,  a contractor is entitled to
receive  payments for its  allowable  costs and, in general,  the  proportionate
share of fees or earnings  for the work done.  If a contract is  terminated  for
default, the government generally pays for only the work it has accepted.  These
regulations  also subject the company to financial  audits and other  reviews by
the  government  of its costs,  performance,  accounting  and  general  business
practices  relating  to its  contracts,  which may result in  adjustment  of the
company's contract-related costs and fees.

Item 2.  Properties

The  Company's  manufacturing  and  engineering  facilities  are at its plant in
Saratoga Springs, New York.

The  Saratoga  Springs  plant,  which the  Company  owns,  consists  of  various
adjoining one-story buildings on a 22 acre site.  (Approximately 8% of this site
is unimproved) The property is not subject to mortgage indebtedness or any other
material  encumbrance.  The plant has a sprinkler system throughout and contains
approximately  151,000  square feet of floor space,  of which 90,000 is used for
manufacturing,  24,000 for  engineering,  33,000 for shipping  and  climatically
secured  storage,  and 4,000 for  offices.  The  offices,  engineering  and some
manufacturing  areas are  air-conditioned.  In addition  to assembly  and wiring
operations,  the plant includes  facilities for  varnishing,  potting,  plating,
impregnation and  spray-painting  operations.  The manufacturing  operation also
includes a complete  machine  shop,  with  welding and sheet  metal  fabrication
facilities  adequate for substantially all of the Company's current  operations.
Besides normal test equipment,  the Company  maintains a  sophisticated  on-site
environmental  test  facility.  In  addition  to  meeting  all of the  Company's
in-house  needs,  the plating,  machine shop and  environmental  facilities  are
available to other companies on a contract basis.

Item 3.  Legal Proceedings

         None


4
<PAGE>

Item 4.  Submission of Matters to a Vote of Security Holders

         None

                                     PART II

Item 5.  Market for the Registrant's Common Equity and Related Stockholder
         Matters

Price Range of Common Stock

The table below shows the range of high and low prices for the Company's  common
stock on the American Stock Exchange (ticker symbol "ESP"), the principal market
for  trading in the common  stock,  for each  quarterly  period for the last two
fiscal years ended June 30:

         2006                                     High                    Low
         First Quarter                            17.88                  15.05
         Second Quarter                           20.45                  17.31
         Third Quarter                            18.95                  15.00
         Fourth Quarter                           19.45                  15.90

         2005                                     High                    Low
         First Quarter                            13.05                  11.18
         Second Quarter                           14.45                  12.80
         Third Quarter                            13.70                  12.83
         Fourth Quarter                           15.88                  12.38

As described in note 17 to the  financial  statements in Part II item 7, a stock
split in the form of a stock  dividend  of one  share of  common  stock for each
share of common stock  issued,  was paid on December 30, 2005 (all per share and
share amounts have been adjusted to reflect this dividend).

Holders

The  approximate  number of  holders  of record of the  common  stock was 118 on
September  21,  2006  according  to records  of the  Company's  transfer  agent.
Included  in this  number are shares held in  "nominee"  or  "street"  name and,
therefore, the number of beneficial owners of the common stock is believed to be
substantially in excess of the foregoing number.

Dividends

The Company  paid cash  dividends on the common stock of $.34 and $.30 per share
for the fiscal  years ended June 30, 2006 and 2005,  respectively.  The Board of
Directors has authorized the payment of a fiscal 2007 first quarter  dividend of
$.13 payable September 22, 2006.

During  fiscal 2006 the Company sold common  stock to certain  employees as they
exercised  existing  stock options  granted under a shareholder  approved  plan.
During the year,  23,200  shares  were sold at prices  that  ranged from $6.63 a
share to $11.25 a share.  The securities  were sold for cash.  Proceeds are used
for general working capital purposes.

There were no purchases of equity securities in the fiscal 2006 fourth quarter.

<TABLE>
<CAPTION>

                        Securities Authorized For Issuance Under Equity Compensation Plans

                           Number of securities to      Weighted-average             Number of Securities remaining
                           be issued upon exercise      exercise price of         available for future issuance under
                           of outstanding options,    outstanding options,        equity compensation plan (excluding
Plan Category                warrants and rights       warrants and rights         securities reflected in column (a))
----------------------------------------------------------------------------------------------------------------------
                                     (a)                       (b)                                  (c)
<S>                                  <C>                        <C>                                <C>
----------------------------------------------------------------------------------------------------------------------

Equity compensation
   plans approved by
   security holders                146,200                    14.02                              96,600
Equity compensation
   plans not approved
   by security holders               --                        --                                  --
                                  --------                                                     --------
           Total                   146,200                                                       96,600
----------------------------------------------------------------------------------------------------------
</TABLE>


5
<PAGE>

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Business Outlook

The business  outlook for the Company is excellent.  The order  backlog  remains
high,  in terms of  Company  revenues  in recent  years,  as sales  continue  to
increase. Also, expectations are for product mix and margins to remain favorable
for fiscal  2007.  During  fiscal 2006 new orders  received by the Company  were
approximately $26.9 million. The order backlog of approximately $37.7 million at
June 30,  2006 gives the  Company a solid base of future  sales and,  therefore,
management  expects a  significant  increase in sales  during  fiscal  2007,  as
compared to fiscal 2006. In addition to the backlog,  the Company  currently has
outstanding quotations  representing in excess of $26.6 million in the aggregate
for both repeat and new programs.  Many  potential  orders are  currently  being
discussed and negotiated with existing and potential new customers.

The total order  backlog was  approximately  $37.7  million at June 30, 2006, an
increase  of $5.9  million  over  June 30,  2005.  The  backlog  represents  the
estimated  remaining  sales value of work to be performed  under firm contracts.
The funded  portion  of this  backlog at June 30,  2006 is  approximately  $29.2
million.  This includes  items that have been  authorized  and  appropriated  by
Congress and/or funded by the customer.  The unfunded  backlog is  approximately
$8.5 million and represents firm multi-year orders for which funding has not yet
been  appropriated by Congress.  While there is no guarantee that future budgets
and  appropriations  will provide  funding for a given  program,  management has
included in unfunded  backlog only those programs that it believes are likely to
receive funding.  The unfunded backlog at June 30, 2005 was  approximately  $8.7
million.

The outstanding  quotations  encompass  various new and previously  manufactured
power  supplies,  transformers,  and  subassemblies.  However,  there  can be no
assurance  that the Company  will acquire any or all of the  anticipated  orders
described  above,  many of which are subject to allocations of the United States
defense  spending  and factors  affecting  the  defense  industry  and  military
procurement generally.

Results of Operations

Net Sales for fiscal years ended June 30, 2006 and 2005,  were  $20,851,570  and
$18,828,700,  respectively,  a 10.7% increase.  Generally,  this increase can be
attributed to the contract  specific  nature of the  Company's  business and the
long-term nature of these contracts. The increase in order backlog that occurred
during the last two quarters of fiscal 2005 began to be  recognized in net sales
in fiscal  2006.  This  trend is  expected  to  continue  into the next  several
quarters.  The sales  backlog at June 30,  2006,  as discussed  above,  includes
significant orders for military and industrial power supplies,  and contracts to
manufacture   certain  customer  products  in  accordance  with   pre-engineered
requirements.

The primary  factor in  determining  gross profit and net income is product mix.
The gross  profits on mature  products and build to print  contracts  are higher
than  with  respect  to  the  products,  which  are  still  in  the  engineering
development stage or in the early stages of production.  In any given accounting
period the mix of product  shipments  between higher margin mature  programs and
less mature programs including loss contracts, has a significant impact on gross
profit and net income.

For fiscal years ended June 30, 2006 and 2005 gross profits were  $4,542,089 and
$3,381,357,  respectively.  Gross profit as a percentage  of sales was 21.8% and
18.0%,  for  fiscal  2006 and  2005,  respectively.  A  favorable  product  mix,
partially offset by higher ESOP compensation expense,  caused the improved gross
profit percentage in fiscal 2006. ESOP compensation  expense included in cost of
sales was  $356,990  for the fiscal year ended June 30,  2006,  and zero for the
fiscal  year  ended  June 30,  2005 (see note 11 to the  financial  statements).
Management  continues  to  evaluate  the  Company's  workforce  to  ensure  that
production   and  overall   execution  of  the  backlog  orders  and  additional
anticipated orders are successfully  performed.  Employment at June 30, 2006 was
169 people, the same number employed at June 30, 2005.

Selling, general and administrative expenses were $2,636,458 for the fiscal year
ended June 30, 2006, an increase of $362,432,  or 15.9% as compared to the prior
year.  This increase is primarily due to an increase in the sales force and ESOP
compensation expense, offset partially by a decrease in professional fees.

Other  income  for fiscal  2006  increased  as  compared  to fiscal  2005 due to
increased  interest  income on the Company's  cash  equivalents  and  short-term
investments  due to higher  interest  rates.  The Company  does not believe that
there is significant risk associated with its investment  policy,  since at June
30, 2006 all of the investments were primarily  represented by short-term liquid
investments including certificates of deposit and money market accounts.


6
<PAGE>

The effective income tax rate was 34.2% in fiscal 2006 and 27.6% in fiscal 2005.
The  effective  tax rate was less than the  statutory  tax rate in  fiscal  2005
mainly due to the  foreign  exportation  benefit  the  Company  received  on its
international sales.

Net income for fiscal 2006, was $1,558,016 or $.77 and $.76 per share, basic and
diluted, respectively, compared to net income of $978,920 or $.48 per share, for
both basic and diluted,  for fiscal  2005.  The increase in net income per share
was due to increased  sales and  improved  gross  profit  margins  offset by the
increase in selling, general and administrative expenses.

Liquidity and Capital Resources

The Company's  working  capital is an appropriate  indicator of the liquidity of
its business,  and during the past two fiscal years, the Company, when possible,
has  funded  all of its  operations  with cash flows  resulting  from  operating
activities  and when  necessary  from its  existing  cash and  investments.  The
Company did not borrow any funds  during the last two fiscal  years.  Management
has available a $3,000,000 line of credit to help fund further growth or working
capital needs,  if necessary,  but does not anticipate the need for any borrowed
funds in the foreseeable future.

The Company's  working  capital as of June 30, 2006 and 2005 was $26,316,971 and
$25,370,512,  respectively.  During 2006 and 2005 the Company repurchased 38,746
and 17,448 shares, respectively, of its common stock from the Company's Employee
Retirement Plan and Trust ("ESOP") and in other open market transactions,  for a
total  purchase  price of $679,809 and $215,366,  respectively.  Under  existing
authorizations  from the  Company's  Board of  Directors,  as of June 30,  2006,
management is authorized to purchase an additional $320,191 of Company stock.

The table below  presents  the summary of cash flow  information  for the fiscal
year indicated:

                                                            2006          2005
                                                            ----          ----
Net cash (used in) provided by operating activities.... $  (309,778)  $  710,049
Net cash (used in) provided by investing activities....  (5,667,338)   2,441,362
Net cash provided by financing activities .............   3,246,224      776,152

Net cash provided by operating  activities  fluctuates between periods primarily
as a result of  differences  in net  income,  the  timing of the  collection  of
accounts receivable,  purchase of inventory, receipt of progress payments, level
of sales and payments of accounts payable. Net cash used in investing activities
increased in fiscal 2006 due to the purchase of short-term  investments  and the
ESOP  transaction  described  in note  11.  The  increase  in cash  provided  by
financing activities is due primarily to the sale of treasury shares to the ESOP
in the first half of fiscal 2006.

The Company believes that the cash generated from operations and when necessary,
from  existing  cash  and  cash  equivalents,  will be  sufficient  to meet  its
long-term funding requirements for the foreseeable future.

Management  believes  that the  Company's  reserve  for bad  debts of  $3,000 is
adequate given the customers with whom the Company does business.  Historically,
bad debt expense has been minimal.

During  fiscal year 2006 and fiscal  2005,  the Company  expended  $468,868  and
$425,362,  respectively,  for plant improvements and new equipment.  The Company
has budgeted  approximately $400,000 for new equipment and plant improvements in
fiscal 2007.  Management  presently  anticipates that the funds required will be
available from current operations.

The Company has entered into standby letters of credit agreements with financial
institutions  primarily  relating  to the  guarantee  of future  performance  on
certain  contracts.  Contingent  liabilities on outstanding  standby  letters of
credit  agreements  aggregated  $246,625 at June 30, 2006.  The Company does not
expect to fund any of the amounts under the standby letters of credit.

Critical Accounting Policies and Estimates

Our  significant  accounting  policies are  described in Note 2 to the financial
statements.  We believe our most critical  accounting  policies  include revenue
recognition and cost estimation on our contracts.


7
<PAGE>

Revenue Recognition and Estimates

A significant portion of our business is comprised of development and production
contracts. Generally revenues on long-term fixed-price contracts are recorded on
a  percentage  of  completion  basis using units of delivery as the  measurement
basis for progress toward completion.

Percentage  of  completion  accounting  requires  judgment  relative to expected
sales,  estimating costs and making assumptions  related to technical issues and
delivery schedule. Contract costs include material, subcontract costs, labor and
an  allocation  of overhead  costs.  The  estimation  of cost at completion of a
contract is subject to numerous variables involving contract costs and estimates
as to the length of time to complete the contract. Given the significance of the
estimation  processes  and  judgments  described  above,  it  is  possible  that
materially  different  amounts of contract  costs could be recorded if different
assumptions were used, based on changes in  circumstances,  in the estimation of
cost at  completion.  When a change in expected sales value or estimated cost is
determined, changes are reflected in current period earnings.

Other Matters

On July 15, 2005,  pursuant to a Stock Purchase Agreement dated as of such date,
the Company sold 150,000  shares of its common  stock,  par value  $0.33-1/3 per
share, to the Espey Mfg. & Electronics Corp. Employee Stock Ownership Plan Trust
(the "ESOP"). The ESOP paid $28.90 per share, for an aggregate purchase price of
$4,335,000.  The  determination  of the  purchase  price was based on a fairness
opinion  obtained by an independent  valuation  firm. The ESOP borrowed from the
Corporation  an amount equal to the purchase  price.  The loan will be repaid in
fifteen (15) equal annual  installments of principal and the unpaid balance will
bear interest at a fixed rate of 6.25% per annum,  the "prime rate" as quoted in
The Wall Street Journal on the date of closing.

The Board of Directors of the Company  approved a purchase price per share equal
to a 5% discount on the average  trading price of the Company's  common stock on
the American Stock Exchange on the date before closing,  but in no event greater
than the fair  market  value as  determined  by an  independent  valuation  firm
retained by the ESOP. The average trading price of the Company's common stock on
the American Stock Exchange on July 14, 2005 was $30.72.

In making the sale, the Company relied on the exemption from registration  under
Section 4(2) of the Securities Act of 1933, as amended,  because the shares sold
were offered only to the ESOP.

After giving  effect to the  transaction  the ESOP owned  380,120  shares of the
Company's 1,158,294 outstanding shares of common stock as of July 15, 2005.


8
<PAGE>

Item 7.  Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firms

To the Board of Directors and Stockholders
Espey Mfg. & Electronics Corp.:


We have audited the accompanying balance sheet of Espey Mfg. & Electronics Corp.
as of  June  30,  2006,  and  the  related  statements  of  income,  changes  in
stockholders'  equity,  and cash flows for the year then ended.  These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit. The financial statements of Espey Mfg. & Electronics Corp. as of June
30,  2005,  were audited by other  auditors  whose report dated August 12, 2005,
expressed an unqualified opinion on those statements.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of the Company as of June 30,
2006,  and the  results of its  operations  and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.

/s/Rotenberg & Co., LLP
-----------------------
Rochester, New York
August 3, 2006



The Board of Directors and Stockholders
Espey Mfg. & Electronics Corp.:

We have audited the accompanying  statements of income, changes in stockholders'
equity, and cash flows of Espey Mfg. & Electronics Corp. for the year ended June
30, 2005.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the results of  operations  and the cash flows of Espey
Mfg. & Electronics  Corp.  for the year ended June 30, 2005, in conformity  with
U.S. generally accepted accounting principles.


/s/KPMG LLP
-----------
KPMG LLP
Albany, New York
August 12, 2005


9
<PAGE>
<TABLE>
<CAPTION>

Espey Mfg. & Electronics Corp.
Balance Sheet
June 30, 2006
----------------------------------------------------------------------------------------
                                                                                 2006
                                                                                 ----
<S>                                                                         <C>
ASSETS
     Cash and cash equivalents ..........................................   $  7,072,615
     Short term investments .............................................      3,936,000
     Trade accounts receivable, net .....................................      4,213,228
     Other receivables ..................................................          6,884

     Inventories:
              Raw materials and supplies ................................      1,834,945
              Work in Process ...........................................      2,268,357
              Costs related to contracts in process, net of progress
                  payments of $234,154 ..................................      8,301,077
                                                                            ------------
              Total inventories .........................................     12,404,379

     Deferred income taxes ..............................................        164,969
     Prepaid expenses and other current assets ..........................        554,127
                                                                            ------------
              Total current assets ......................................     28,352,202
                                                                            ------------
     Property, plant and equipment, net .................................      2,882,452
                                                                            ------------

                  Total Assets ..........................................   $ 31,234,654
                                                                            ============

LIABILITIES AND STOCKHOLDERS' EQUITY

     Accounts payable ...................................................   $    615,586
     Accrued expenses:
              Salaries, wages and commissions ...........................        128,007
              Vacation ..................................................        545,423
              Other .....................................................         51,400
     Payroll and other taxes withheld and accrued .......................         40,597
     Income taxes payable ...............................................        654,218
                                                                            ------------
              Total current liabilities .................................      2,035,231
                                                                            ------------
     Deferred income taxes ..............................................        226,653
                                                                            ------------
                  Total Liabilities .....................................      2,261,884
                                                                            ------------

     Common stock, par value $.33-1/3 per share
              Authorized 10,000,000 shares; Issued 3,029,874 shares in
                   2006. Outstanding 2,304,562 (includes 274,167 Unearned
                   ESOP Shares) .........................................      1,009,958
     Capital in excess of par value .....................................     12,506,749
     Retained earnings ..................................................     25,651,945
                                                                            ------------
                                                                              39,168,652

     Less:    Unearned ESOP Shares ......................................     (3,961,079)
              Cost of 725,312 shares of common stock in treasury ........     (6,234,803)
                                                                            ------------
                  Total Stockholders' Equity ............................     28,972,770
                                                                            ------------

                  Total Liabilities and Stockholders' Equity ............   $ 31,234,654
                                                                            ============
</TABLE>

The accompanying notes are an integral part of the financial statements.


10
<PAGE>

Espey Mfg. & Electronics Corp.
Statements of Income
Years Ended June 30, 2006 and 2005
--------------------------------------------------------------------------------
                                                       2006            2005
                                                       ----            ----
Net sales .....................................   $ 20,851,570    $ 18,828,700
Cost of sales .................................     16,309,481      15,447,343
                                                  ------------    ------------
                Gross Profit ..................      4,542,089       3,381,357

Selling, general and administrative expenses ..      2,636,458       2,274,026
                                                  ------------    ------------
                Operating income ..............      1,905,631       1,107,331

Other income (expense)
                Interest and dividend income ..        464,143         228,159
                Other .........................         (3,220)         16,365
                                                  ------------    ------------
                Total other income, net .......        460,923         244,524
                                                  ------------    ------------

Income before income taxes ....................      2,366,554       1,351,855

Provision for income taxes ....................        808,538         372,935
                                                  ------------    ------------

                Net income ....................   $  1,558,016    $    978,920
                                                  ============    ============

Net income per share:
     Basic ....................................   $        .77    $        .48
     Diluted ..................................   $        .76    $        .48
                                                  ------------    ------------

Weighted average number of shares outstanding:
     Basic ....................................      2,012,761       2,021,234
     Diluted ..................................      2,049,455       2,043,208
                                                  ============    ============


The accompanying notes are an integral part of the financial statements.


11
<PAGE>
<TABLE>
<CAPTION>

Espey Mfg. & Electronics Corp.
Statements of Changes in Stockholders' Equity
Years Ended June 30, 2006 and 2005
-------------------------------------------------------------------------------------------------------------------

                                         Outstanding                   Capital in        Unearned
                                           Common                       Excess of          ESOP         Retained
                                           Shares         $ Amount      Par Value         Shares        Earnings
                                        ------------    ------------   ------------    ------------    ------------
<S>                                     <C>               <C>         <C>              <C>               <C>

Balance as of June 30, 2004                2,029,236    $    504,979   $ 10,411,915    $         --    $ 24,911,920
                                        ------------    ------------   ------------    ------------    ------------

Net income, 2005                                                                                            978,920

Stock options exercised                        4,800                        (12,460)

Dividends paid on common stock
 $.30 per share                                                                                            (606,286)

Tax effect of stock options exercised                                        12,618

Purchase of treasury stock                   (17,448)
                                        ------------    ------------   ------------    ------------    ------------

Balance as of June 30, 2005                2,016,588         504,979     10,412,073              --      25,284,554
                                        ------------    ------------   ------------    ------------    ------------

Net income, 2006                                                                                          1,558,016

Stock options exercised                       23,200                         48,578

Dividends paid on common stock
  $.3425 per share                                                                                         (685,646)

Stock dividend paid on common stock                          504,979                                       (504,979)

Sale of treasury stock to ESOP               303,520                      1,973,781      (4,335,000)

Purchase of treasury stock                   (38,746)

Reduction of Unearned ESOP Shares                                            72,317         373,921
                                        ------------    ------------   ------------    ------------    ------------

Balance as of June 30, 2006                2,304,562    $  1,009,958   $ 12,506,749    $ (3,961,079)   $ 25,651,945
                                        ============    ============   ============    ============    ============
</TABLE>


12
<PAGE>
<TABLE>
<CAPTION>

                                              Treasury Stock               Total
                                        ----------------------------    Stockholders'
                                           Shares         $ Amount         Equity
                                        ------------    ------------    ------------
<S>                                           <C>             <C>             <C>
Balance as of June 30, 2004                1,000,638    $ (7,986,908)   $ 27,841,906
                                        ------------    ------------    ------------

Net income, 2005                                                             978,920

Stock options exercised                       (4,800)         57,960          45,500

Dividends paid on common stock
   $.30 per share                                                           (606,286)

Tax effect on stock options exercised                                         12,618

Purchase of treasury stock                    17,448        (215,366)       (215,366)
                                        ------------    ------------    ------------

Balance as of June 30, 2005                1,013,286      (8,144,314)     28,057,292
                                        ------------    ------------    ------------

Net income, 2006                                                           1,558,016

Stock options exercised                      (23,200)        166,677         215,255

Dividends paid on common stock                                              (685,646)
   $.3425 per share

Stock dividend paid on common stock                                               --

Sale of treasury stock to ESOP              (303,520)      2,422,642          61,423

Purchase of treasury stock                    38,746        (679,808)       (679,808)

Reduction of Unearned ESOP Shares                                            446,238
                                        ------------    ------------    ------------

Balance as of June 30, 2006                  725,312    $ (6,234,803)   $ 28,972,770
                                        ============    ============    ============
</TABLE>

The accompanying notes are an integral part of the financial statements.


13
<PAGE>
<TABLE>
<CAPTION>

Espey Mfg. & Electronics Corp.
Statements of Cash Flows
Years Ended June 30, 2006 and 2005
--------------------------------------------------------------------------------

                                                              2006           2005
                                                              ----           ----
<S>                                                        <C>              <C>
Cash Flows From Operating Activities:
     Net income                                           $ 1,558,016    $   978,920

     Adjustments to reconcile net income to net cash
       provided by operating activities:

     Tax effect on stock options exercised                         --         12,618

     Depreciation                                             532,735        541,041

     ESOP Compensation Expense                                446,238             --

     Loss on disposal of plant and equipment                   37,988             --

     Deferred income tax (benefit)                           (100,376)       (85,380)

     Changes in assets and liabilities:

          (Increase) decrease in trade receivables         (1,219,988)      (852,843)

          (Increase) decrease in other receivables             (3,711)        (1,364)

          (Increase) decrease in inventories, net          (2,036,827)      (282,255)

          (Increase) decrease in prepaid
             expenses and other current assets               (218,132)        23,398

          Increase (decrease) in accounts payable             236,815        128,096

          Increase (decrease) in accrued
             salaries, wages and commissions                   65,729         17,759

          (Decrease) increase in accrued
             employee insurance costs                              --         (7,487)

          Increase (decrease) in vacation accrual              47,408         46,499

          (Decrease) increase in other accrued expenses        (2,383)         3,413

          Increase (decrease) in payroll and
             other taxes withheld and accrued                   4,620          9,977

          Increase (decrease) in income taxes payable         342,090        177,657
                                                          -----------    -----------

                      Net cash (used in) provided by
                         operating activities             $  (309,778)   $   710,049
                                                          -----------    -----------

The accompanying notes are an integral part of the financial statements.

                                                                          (Continued)

14
<PAGE>


Cash Flows From Investing Activities:

     Unearned ESOP Shares                                 (4,335,000)             --

     Additions to property, plant and equipment             (468,868)       (425,362)

     Purchase of short term investments                   (5,952,000)     (2,688,000)

     Proceeds from maturity of short term investments      5,088,000         672,000

     Proceeds on sale of assets, net                             530              --
                                                        ------------    ------------

                      Net cash used in
                         investing activities             (5,667,338)     (2,441,362)
                                                        ------------    ------------

Cash Flows From Financing Activities:

     Sale of Treasury Stock                                4,396,423              --

     Dividends on common stock                              (685,646)       (606,286)

     Purchase of treasury stock                             (679,808)       (215,366)

     Proceeds from exercise of stock options                 215,255          45,500
                                                        ------------    ------------

                      Net cash provided by (used in)
                         financing activities              3,246,224        (776,152)
                                                        ------------    ------------

Decrease in cash and cash equivalents                     (2,730,892)     (2,507,465)

Cash and cash equivalents, beginning of the year           9,803,507      12,310,972
                                                        ------------    ------------

Cash and cash equivalents, end of the year              $  7,072,615    $  9,803,507
                                                        ============    ============

Income Taxes Paid                                       $    591,345    $    268,040
                                                        ============    ============
</TABLE>

The accompanying notes are an integral part of the financial statements.


15
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 1. Nature of operations

Espey Mfg. & Electronics  Corp.  (the Company) is a  manufacturer  of electronic
equipment used primarily in military and industrial applications.  The principal
markets for the Company's products are companies that provide electronic support
to both military and industrial applications.

Note 2. Summary of Significant Accounting Policies

Inventory Valuation, Cost Estimation and Revenue Recognition
Raw materials are valued at weighted average cost.

Inventoried  work relating to contracts in process and work in process is valued
at actual production cost,  including factory overhead incurred to date. Work in
process  represents  spare units;  parts and other  inventory  items acquired or
produced to service units previously sold or to meet anticipated  future orders.
The cost  elements  of  contracts  in  process  and work in  process  consist of
production  costs of goods and  services  currently  in  process  and  overhead.
Provision  for losses on  contracts  is made when the  existence  of such losses
becomes  probable and estimable.  The costs  attributed to units delivered under
contracts  are based on the estimated  average cost of all units  expected to be
produced. Certain contracts are expected to extend beyond twelve months.

Revenue  is  recognized  on  contracts  in the  period  in which  the  units are
delivered and billed  (units-of-delivery  method). A significant  portion of our
business is  comprised  of  development  and  production  contracts.  Generally,
revenues on long-term  fixed-price  contracts  are  recorded on a percentage  of
completion  basis using units of delivery as the measurement  basis for progress
toward completion.

Percentage  of  completion  accounting  requires  judgment  relative to expected
sales,  estimating costs and making assumptions  related to technical issues and
delivery schedule. Contract costs include material, subcontract costs, labor and
an  allocation  of overhead  costs.  The  estimation  of cost at completion of a
contract is subject to numerous variables involving contract costs and estimates
as to the length of time to complete the contract. Given the significance of the
estimation  processes  and  judgments  described  above,  it  is  possible  that
materially  different  amounts of contract  costs could be recorded if different
assumptions were used, based on changes in  circumstances,  in the estimation of
cost at  completion.  When a change in expected sales value or estimated cost is
determined, changes are reflected in current period earnings.


Depreciation
Depreciation  of plant and equipment is computed on a  straight-line  basis over
the estimated useful lives of the assets.

Estimated useful lives of depreciable assets are as follows:

      Buildings and improvements                                   10 - 35 years
      Machinery and equipment                                       3 - 25 years
      Furniture, fixtures and office equipment                      5 - 10 years

Income Taxes
The  Company  follows  the  provisions  of  Statement  of  Financial  Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes."

Under the provisions of SFAS No. 109,  deferred tax assets and  liabilities  are
recognized for the future tax consequences  attributable to differences  between
the financial  statement carrying amounts of existing assets and liabilities and
their  respective tax bases.  Deferred tax assets and  liabilities  are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect on deferred taxes and  liabilities of a change in tax rates is recognized
in earnings in the period that  includes the enactment  date. In addition,  SFAS
No. 109 requires that the tax benefit of tax-deductible dividends on unallocated
ESOP shares be recorded as a direct addition to retained earnings rather than as
a reduction of income tax expense.

16
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 2.  Summary of Significant Accounting Policies, Continued

Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks, certificates of deposit, and
money market accounts.  The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.

Short-term  investments include  certificates of deposit with maturities greater
than three months to a year.

Stock-Based Compensation
The intrinsic  value method of accounting is used for  stock-based  compensation
plans.  Under the intrinsic value method,  compensation  cost is measured as the
excess,  if any, of the quoted  market price of the stock at the grant date over
the amount an employee must pay to acquire the stock.

The Company has elected to account for its stock-based  compensation plans under
the intrinsic  value-based method of accounting as permitted by SFAS No. 123 and
as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock  Issued to  Employees",  and related  interpretations  including  FASB
Interpretation  No. 44,  "Accounting  for Certain  Transactions  Involving Stock
Compensation  - An  Interpretation  of APB No. 25", in accounting  for its fixed
stock option plans. Under this method, compensation expense would be recorded on
the date of grant  only if the  current  market  price of the  underlying  stock
exceeded  the  exercise  price.  In  December  2003,  the  Financial  Accounting
Standards  Board  ("FASB")  issued  SFAS No.  148,  "Accounting  for Stock Based
Compensation".  SFAS No. 148 provides  alternative  methods of transition  for a
voluntary  change to the fair value based method of accounting  for  stock-based
employee  compensation  and amends the disclosure  requirements of SFAS No. 123,
"Accounting for Stock Based Compensation", to require more prominent disclosures
in both annual and interim  financial  statements about the method of accounting
for  stock-based  employee  compensation  and the effect of the  method  used on
reported  results.  The Company adopted the disclosure  requirements of SFAS No.
123 and SFAS No. 148, as required.

The  following  table  illustrates  the  effect on net income and net income per
share if the Company had applied the fair value  recognition  provisions of SFAS
No. 123, to stock-based employee compensation.


                                            Years Ended June 30,
                                             2006          2005
                                             ----          ----

Net income as reported                  $  1,558,016   $    978,920

Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects           (88,411)       (43,470)
                                        ------------   ------------

Pro forma net income                    $  1,469,605   $    935,450
                                        ============   ============

Net income per share:

   Basic-as reported                    $       0.77   $       0.48
                                        ============   ============
   Basic-pro forma                      $       0.73   $       0.46
                                        ============   ============


   Diluted-as reported                  $       0.76   $       0.48
                                        ============   ============
   Diluted-pro forma                    $       0.72   $       0.46
                                        ============   ============


17
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 2.  Summary of Significant Accounting Policies, Continued

Per Share Amounts
SFAS 128  "Earnings  Per Share"  requires  the Company to  calculate  net income
(loss) per share  based on basic and  diluted  net income  (loss) per share,  as
defined.  Basic EPS  excludes  dilution  and is computed by dividing  net income
(loss) by the  weighted  average  number of shares  outstanding  for the period.
Diluted EPS reflects the  potential  dilution  that could occur if securities or
other  contracts to issue common stock were  exercised or converted  into common
stock.  The dilutive  effect of  outstanding  options  issued by the Company are
reflected in diluted EPS using the  treasury  stock  method.  Under the treasury
stock method,  options will only have a dilutive  effect when the average market
price of common  stock  during  the period  exceeds  the  exercise  price of the
options.

Comprehensive Income
Comprehensive  Income for the years ended June 30, 2006 and 2005 is equal to net
income.

Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amount of  assets  and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

Investment Tax Credits
Investment tax credits are accounted for as a reduction of income tax expense in
the year taxes payable are reduced.

Reclassifications
Certain  reclassifications  may  have  been  made to the  prior  year  financial
statements to conform to the current year presentation.

Recently Issued Accounting Standards
In November  2004,  the FASB issued SFAS No.  151,  "Accounting  for  Unexpected
Production  Defects and Waste." SFAS No. 151 requires  that  "abnormal  freight,
handling costs, and amounts of wasted materials (spoilage)" should be treated as
current-period  costs.  Under this  concept,  if the costs  associated  with the
actual  level of spoilage  or  production  defects  are  greater  than the costs
associated with the range of normal spoilage or defects,  the difference  should
be charged to  current-period  expense.  SFAS No.  151 is  effective  for annual
periods beginning after June 15, 2005. The adoption of SFAS No. 151 did not have
a  material  impact  on  the  Company's  results  of  operations  and  financial
condition.

In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment". SFAS No.
123R requires companies to recognize in the income statement the grant-date fair
value of stock options and other equity-based  compensation issued to employees.
SFAS No. 123R will be effective for the Company at the beginning of fiscal 2007.
Although  the  adoption  of SFAS No.  123R  will have no  adverse  impact on our
balance  sheet or total cash flows,  it will affect our net income and  earnings
per share.  The actual effects of adopting SFAS No. 123R will depend on numerous
factors including the amounts of share-based payments granted in the future, our
stock price  volatility,  estimated  forfeiture  rates and employee stock option
exercise behavior. See Note 2 for the effect on reported net income and earnings
per share if we had  accounted  for our stock  option  plan using the fair value
method.  In March 2005,  the U.S.  Securities  and Exchange  Commission  ("SEC")
issued Staff Accounting  Bulletin No. 107 ("SAB 107"),  which expresses views of
the SEC staff regarding the application of SFAS No. 123(R).  Among other things,
SAB 107 provides  interpretive  guidance related to the interaction between SFAS
No. 123(R) and certain SEC rules and  regulations,  and provides the SEC staff's
views  regarding the valuation of share-based  payment  arrangements  for public
companies.

In December 2004, the FASB issued Staff Position FAS 109-1 regarding Income from
Domestic Production Activities which was effective  immediately.  Staff Position
FAS 109-1  clarifies  SFAS No. 109's  guidance that applies to the new deduction
for qualified domestic production activities.  The staff position clarifies that
the deduction should be accounted for as a special deduction under SFAS No. 109.
The adoption of Staff  Position FAS 109-1 did not have a material  impact on the
Company's results of operations or financial condition.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
-  Accounting  Principles  Board  Opinion  No. 29,  Accounting  for  Nonmonetary
Transactions".  SFAS No. 153  requires  that  exchanges  should be recorded  and
measured at the fair value of the assets  exchanged,  with  certain  exceptions.
SFAS No. 153 was

18
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 2.  Summary of Significant Accounting Policies, Continued

effective for nonmonetary  exchanges occurring in fiscal periods beginning after
June 15, 2005. The adoption of SFAS No. 153 did not have a significant impact on
the Company's results of operations or financial position.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3". SFAS
154 requires retrospective application to prior period financial statements of a
voluntary change in accounting  principle and was effective in the first quarter
of 2006.  The adoption of SFAS 154 did not have a material  effect on results of
operations, financial condition or cash flows.

Impairment of Long-Lived Assets
Long-lived assets,  including property,  plant, and equipment,  are reviewed for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset may not be recoverable.  Recoverability of assets to
be held and used is measured by a comparison of the carrying  amount of an asset
to  estimated  undiscounted  future cash flows  expected to be  generated by the
asset.  If the carrying  amount of an asset  exceeds its  estimated  future cash
flows,  an  impairment  charge is recognized by the amount by which the carrying
amount of the asset  exceeds the fair value of the asset.  Assets to be disposed
of are  separately  presented in the balance  sheet and reported at the lower of
the carrying amount or fair value less costs to sell, and no longer depreciated.
The assets and  liabilities of a disposed group  classified as held for sale are
presented  separately in the  appropriate  asset and  liability  sections of the
balance sheet.

Concentrations of Risk
The market for our  defense  electronics  products is largely  dependent  on the
availability of new contracts from the United States and foreign  governments to
prime contractors to which we provide components. Any decline in expenditures by
the United  States or  foreign  governments  may have an  adverse  effect on our
financial performance.

Generally,  U.S.  government  contracts  are  subject  to  procurement  laws and
regulations.  Some  of the  Company's  contracts  are  governed  by the  Federal
Acquisition Regulation (FAR), which lays out uniform policies and procedures for
acquiring  goods  and  services  by the  U.S.  government,  and  agency-specific
acquisition  regulations that implement or supplement the FAR. For example,  the
Department of Defense implements the FAR through the Defense Federal Acquisition
Regulation (DFAR).

The FAR also contains  guidelines and  regulations for managing a contract after
award, including conditions under which contracts may be terminated, in whole or
in part,  at the  government's  convenience  or for  default.  If a contract  is
terminated for the  convenience of the  government,  a contractor is entitled to
receive  payments for its  allowable  costs and, in general,  the  proportionate
share of fees or earnings  for the work done.  If a contract is  terminated  for
default, the government generally pays for only the work it has accepted.  These
regulations  also subject the Company to financial  audits and other  reviews by
the  government  of its costs,  performance,  accounting  and  general  business
practices  relating  to its  contracts,  which may result in  adjustment  of the
Company's contract-related costs and fees.

Note 3. Contracts in Process

Contracts in process at June 30, 2006 and 2005 are as follows:

<TABLE>
<CAPTION>
                                                                                2006             2005
                                                                                ----             ----
<S>                                                                          <C>              <C>
       Gross contract value                                                  $37,722,746      $31,757,086

       Costs related to contracts in process, net of progress payments
       of $234,154 in fiscal 2006 and $97,758 in fiscal 2005                 $ 8,301,077      $ 6,056,290

</TABLE>

Included in costs relating to contracts in process at June 30, 2006 and 2005 are
costs of $1,895,688 and $1,814,905, respectively, relative to contracts that may
not be completed  within the ensuing year. Under the  units-of-delivery  method,
the related  sale and cost of sales will not be  reflected  in the  statement of
income until the units under contract are shipped.

19
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 4. Property, Plant and Equipment

A summary of the original cost of property, plant and equipment at June 30, 2006
and 2005 is as follows:

                                                     2006            2005
                                                     ----            ----
      Land                                       $     45,000    $     45,000
      Building and improvements                     3,704,503       4,065,040
      Machinery and equipment                       7,143,329       7,831,278
      Furniture, fixtures and office equipment        243,140         321,732
                                                 ------------    ------------
                                                   11,135,972      12,263,050
      Accumulated depreciation                     (8,253,520)     (9,278,213)
                                                 ------------    ------------
                                                 $  2,882,452    $  2,984,837
                                                 ============    ============

Depreciation expense was $532,735 and $541,041,  during the years ended June 30,
2006 and 2005, respectively.

Note 5. Line of credit

At June 30, 2006, the Company has an uncommitted  and unused Line of Credit with
a financial  institution.  The agreement provides that the Company may borrow up
to $3,000,000.  The line provides for interest at the  borrower's  choice of (I)
prime minus .75% or (II) LIBOR plus 1.80% for periods of 1, 2, or 3 months.  Any
borrowing  under  the  line  of  credit  will  be   collateralized  by  accounts
receivable.

Note 6. Research and Development Costs

Research and  development  costs charged to cost of sales during the years ended
June 30, 2006 and 2005 were approximately $121,000 and $187,000, respectively.

Note 7. Pension Expense

Under terms of a  negotiated  union  contract,  the Company is obligated to make
contributions  to  a  union-sponsored  defined  benefit  pension  plan  covering
eligible employees.  Such contributions and expenses are based upon hours worked
at a specified rate and amounted to $88,138 in fiscal 2006 and $86,876 in fiscal
2005.

The  Company  sponsors  a  401(k)  plan  with  employee  and  employer  matching
contributions.  The employer match is 10% of the employee  contribution  and was
$32,590 and $28,855, for fiscal years 2006 and 2005, respectively.


Note 8. Provision for Income Taxes

A summary of the  components  of the  provision  for income  taxes for the years
ended June 30, 2006 and 2005 is as follows:

                                                2006         2005
                                                ----         ----
            Current tax expense - federal    $ 823,564    $ 419,649
            Current tax expense - state         85,351       38,666
            Deferred tax (benefit) expense    (100,376)     (85,380)
                                             ---------    ---------
                                             $ 808,539    $ 372,935
                                             =========    =========

Deferred income taxes reflect the impact of "temporary  differences" between the
amount of assets and  liabilities  for  financial  reporting  purposes  and such
amounts measured by tax laws and regulations.  These "temporary differences" are
determined in accordance with SFAS No. 109.

The  combined  U.S.  federal and state  effective  income tax rates of 34.2% and
27.6%, for 2006 and 2005 respectively,  differed from the statutory U.S. federal
income tax rate for the following reasons:

20
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 8. Provision for Income Taxes, Continued
                                                               2006       2005
                                                               ----       ----
U.S. federal statutory income tax rate                         34.0%      34.0%
Increase (reduction) in rate resulting from:
    State franchise tax, net of federal income tax benefit      2.4        1.9
    Foreign exportation benefit                                (0.8)      (2.7)
    ESOP cost versus Fair Market Value                          1.0         --
    Dividend on allocated ESOP shares                          (1.8)        --
    Qualified Production Activities                            (1.0)        --
    Adjustment of deferred tax accounts                          --       (5.2)
    Other                                                       0.4       (0.4)
                                                             ------     ------
Effective tax rate                                             34.2%      27.6%
                                                             ======     ======

For the years  ended  June 30,  2006 and 2005  deferred  income  tax  benefit of
$(100,376)  and  $(85,380),  respectively,  result from the changes in temporary
differences for each year.  Adjustments were made to the Company's  deferred tax
assets and  liabilities in fiscal 2005 based on an analysis  completed in fiscal
2005.  The tax effects of temporary  differences  that give rise to deferred tax
assets and deferred tax  liabilities  as of June 30, 2006 and 2005 are presented
as follows:
                                                           2006       2005
                                                           ----       ----
   Deferred tax assets:
       Accrued expenses ..............................   $142,269   $125,215
       ESOP ..........................................     30,328         --
       Other .........................................     12,500     13,964
                                                         --------   --------
                     Total deferred tax assets .......    185,097    139,179
                                                         --------   --------

   Deferred tax liabilities:
       Property, plant and equipment - principally due
            to differences in depreciation methods ...    226,653    298,057
       Inventory - effect on uniform capitalization ..     20,128      3,182
                                                         --------   --------
                     Total deferred tax liabilities ..    246,781    301,239
                                                         --------   --------
   Net deferred tax liability ........................   $ 61,684   $162,060
                                                         ========   ========

In assessing  the  realizability  of deferred tax assets,  management  considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will be  realized.  The  ultimate  realization  of deferred tax assets is
dependent  upon the  generation of future  taxable  income during the periods in
which those temporary  differences become deductible.  Management  considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning  strategies in making this assessment.  Based upon the level of
historical  taxable  income and  projection  for future  taxable income over the
period in which the deferred tax assets are deductible,  management  believes it
is more  likely  than not that the Company  will  realize the  benefits of these
temporary differences without consideration of a valuation allowance.

Note 9. Significant Customers

A significant  portion of the Company's  business is the  production of military
and industrial  electronic equipment for use by the U.S. and foreign governments
and certain industrial  customers.  Sales to three domestic customers  accounted
for 35%,  17%,  and 13% of total  sales in fiscal  2006.  Sales to two  domestic
customers accounted for 32% and 14% of total sales in fiscal 2005, respectively.

Export sales in fiscal 2006 and fiscal 2005 were  approximately  $3,392,000  and
$4,946,000, respectively.

21
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 10. Stock Rights Plan

The Company has a  Shareholder  Rights Plan that  expires on December  31, 2009.
Under this plan,  common stock purchase rights were distributed as a dividend at
the rate of one right for each share of common stock outstanding as of or issued
subsequent  to April 14, 1989.  Each right  entitles  the holder  thereof to buy
one-half  share of common  stock of the Company at an exercise  price of $25 per
share (after giving  effect to the stock split  described in Note 17) subject to
adjustment.  The  rights  are  exercisable  only if a person  or group  acquires
beneficial ownership of 15% or more of the Company's common stock or commences a
tender or exchange  offer  which,  if  consummated,  would result in the offeror
individually or, together with all affiliates and associates thereof,  being the
beneficial owner of 15% or more of the Company's common stock.

If  a  15%  or  larger  shareholder   should  engage  in  certain   self-dealing
transactions  or a merger with the Company in which the Company is the surviving
corporation  and its shares of common  stock are not changed or  converted  into
equity  securities  of any other  person,  or if any  person  were to become the
beneficial owner of 15% or more of the Company's  common stock,  then each right
not owned by such  shareholder or related  parties of such  shareholder  (all of
which will be void) will  entitle its holder to  purchase,  at the right's  then
current  exercise price,  shares of the Company's common stock having a value of
twice the right's exercise price. In addition, if the Company is involved in any
other  merger  or  consolidation  with,  or sells  50% or more of its  assets or
earning power to another person, each right will entitle its holder to purchase,
at the right's then current exercise price, shares of common stock of such other
person having a value of twice the right's exercise price.

The Company  generally is entitled to redeem the rights at one cent per right at
any time until the 15th day (or 25th day if extended by the  Company's  Board of
Directors)  following public  announcement that a 15% position has been acquired
or the  commencement of a tender or exchange offer which, if consummated,  would
result in the offer or,  together with all affiliates  and  associates  thereof,
being the beneficial owner of 15% or more of the Company's common stock.

Note 11. Employee Stock Ownership Plan

The Company sponsors a leveraged employee stock ownership plan (the "ESOP") that
covers  all  nonunion  employees  who work  1,000 or more hours per year and are
employed on June 30. Prior to July 15, 2005, the ESOP owned 230,120 shares,  all
of which were  allocated to  employees.  On July 15,  2005,  pursuant to a Stock
Purchase Agreement dated as of such date, the Company, by selling 150,000 shares
of its  common  stock,  par value  $0.33-1/3  per  share,  to the Espey  Mfg.  &
Electronics Corp.  Employee Stock Ownership Plan Trust,  provided more shares to
be allocated to employees for services rendered over the next 15 years. The ESOP
paid  $28.90 per share,  for an  aggregate  purchase  price of  $4,335,000.  The
determination  of the purchase price was based on a fairness opinion obtained by
an independent  valuation firm. The ESOP borrowed from the Corporation an amount
equal to the  purchase  price.  The loan will be repaid in  fifteen  (15)  equal
annual  installments of principal and the unpaid balance will bear interest at a
fixed rate of 6.25% per annum,  the  "prime  rate" as quoted in The Wall  Street
Journal on the date of closing. The above ESOP information has not been adjusted
for the stock split completed December 30, 2006.

The Board of Directors  of the Company had  approved a purchase  price per share
equal to a 5% discount  on the average  trading  price of the  Company's  common
stock on the American Stock Exchange on the date before closing, but in no event
greater than the fair market value as  determined  by an  independent  valuation
firm retained by the ESOP.  The average  trading  price of the Company's  common
stock on the American Stock Exchange on July 14, 2005 was $30.72.

In making the sale, the Company relied on the exemption from registration  under
Section 4(2) of the Securities Act of 1933, as amended,  because the shares sold
were offered only to the ESOP.

After giving effect to the  transaction,  the ESOP owned  380,120  shares of the
Company's 1,158,294 outstanding shares of common stock as of July 15, 2005.

The  Company  makes  annual  contributions  to the ESOP equal to the ESOP's debt
service less dividends on unallocated shares received by the ESOP. All dividends
on  unallocated  shares  received  by the ESOP  are  used to pay  debt  service.
Dividends  on  allocated  ESOP shares are  recorded  as a reduction  of retained
earnings. As the debt is

22
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 11. Employee Stock Ownership Plan, Continued

repaid,  shares are released and  allocated  to active  employees,  based on the
proportion of debt service paid in the year.  The Company  accounts for its ESOP
in accordance with Statement of Position 93-6. Accordingly, the shares purchased
by the ESOP are reported as Unearned  ESOP Shares in the  statement of financial
position.  As shares  are  released  or  committed-to-be-released,  the  Company
reports  compensation  expense equal to the current  average market price of the
shares,  and  the  shares  become  outstanding  for   earnings-per-share   (EPS)
computations. ESOP compensation expense was $446,238 for the year ended June 30,
2006. The ESOP shares as of June 30, 2006,  after the stock split referred to in
Note 17, were as follows:

         Allocated Shares                                      446,418
         Committed-to-be-released shares                            --
         Unreleased shares                                     274,167
                                                            ----------

         Total shares held by the ESOP                         720,585
                                                            ==========

         Fair value of unreleased shares at June 30, 2006   $4,578,589
                                                            ==========

Note 12. Stock Based Compensation

During fiscal 2000,  the Board of Directors and  shareholders  approved the 2000
Stock Option Plan (the Plan). Under the Plan,  incentive and non-qualified stock
options  may be  granted  to  purchase  shares of common  stock of the  Company.
Options  authorized for issuance under the Plan totaled 300,000.  As of June 30,
2006, the Plan was authorized to grant options to purchase  96,600 shares of the
Company's common stock.

Options  under the Plan have been  granted with  exercise  prices at fair market
value at the grant date and vest over a period of two years. All options must be
exercised  within 10 years  from the date of grant and are  exercisable  anytime
after the two-year vesting period.

Information concerning the plans incentive and non-qualified stock options is as
follows:

                                         Option           Option Price
                                         Shares             Per Share
         ---------------------------------------------------------------
         June 30, 2004                   74,000           $6.63 - 9.93
         ---------------------------------------------------------------
         Options granted                 31,000              $11.25
         Options canceled                (3,000)          $8.98 - 11.25
         Options exercised               (4,800)          $8.98 - 9.93
         ---------------------------------------------------------------
         June 30, 2005                   97,200           $6.63 - 11.25
         ---------------------------------------------------------------
         Options granted                 76,200          $17.36 - 17.80
         Options canceled                (4,000)          $6.63 - 11.25
         Options exercised              (23,200)          $6.63 - 9.93
         ---------------------------------------------------------------
         June 30, 2006                   146,200
         ===============================================================

The table below summarizes information with respect to stock options outstanding
as of June 30, 2006:

                                 Remaining                 Exercise Price of
       Exercise     Options     Contractual     Options       Exercisable
        Prices    Outstanding      Life       Exercisable       Options
     ----------------------------------------------------------------------
        $ 6.63       1,400           4           1,400           $ 6.63
        $ 8.98       4,600           5           4,600           $ 8.98
        $ 9.93      14,200           6          14,200           $ 9.93
        $ 9.25      21,400           7          21,400           $ 9.25
        $11.25      28,400           8              --               --
        $17.36      37,000           9              --               --
        $17.80      39,200          10              --               --
     ----------------------------------------------------------------------
     Total         146,200                      41,600
     ======================================================================


23
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 12. Stock Based Compensation, Continued

The weighted average fair value of options granted under the plans during fiscal
years 2006 and 2005 was $4.11 and $3.89, respectively.  The assumptions used for
the Black-Scholes model are as follows:

                                                        2006       2005
                                                        ----       ----
     Risk-free interest rate.....................       4.5%       4.0%
     Expected term...............................  5.5 years    5 years
     Company's expected volatility...............      22.5%      20.0%
     Dividend yield..............................       2.1%       3.0%


As  described  in note 17, a stock split in the form of a stock  dividend of one
share of  common  stock  for each  share of  common  stock  issued,  was paid on
December 30, 2005 (all per share and share amounts have been adjusted to reflect
this dividend).

Note 13. Financial Instruments/Concentration of Credit Risk

The  carrying  amounts  of  financial  instruments,   including  cash  and  cash
equivalents, short term investments,  accounts receivable,  accounts payable and
accrued  expenses,  approximated fair value as of June 30, 2006 and 2005 because
of the relatively short maturities of these instruments.

Financial  instruments that potentially subject the Company to concentrations of
credit  risk  consist  principally  of cash  and  cash  equivalents,  short-term
investments  and  accounts  receivable.  The  Company  maintains  cash  and cash
equivalents with various financial  institutions.  At times such investments may
be in excess of FDIC  insurance  limits.  As disclosed in Note 9, a  significant
portion of the Company's  business is the  production of military and industrial
electronic  equipment  for use by the U.S. and foreign  governments  and certain
industrial  customers.  The related accounts receivable balance of the Company's
total trade accounts receivable  balance,  represented at June 30, 2006 by three
customers, was 63% and by two customers at June 30, 2005 was 57%.

Although the Company's  exposure to credit risk  associated  with  nonpayment of
these balances is affected by the conditions or occurrences  within the U.S. and
foreign  governments,  the Company  believes that its trade accounts  receivable
credit risk exposure is limited. The Company performs ongoing credit evaluations
of its customer's financial conditions and requires collateral, such as progress
payments,  in certain  circumstances.  The Company  establishes an allowance for
doubtful  accounts  based upon factors  surrounding  the credit risk of specific
customers, historical trends and other information.

Note 14. Related Parties

The Company  paid a law firm in which a director of the Company is a partner,  a
total of $19,658 and $72,979,  for legal services during fiscal years ended June
30, 2006 and 2005, respectively.  Included in the payment of $19,658 and $72,979
for  fiscal  year  ended  June 30,  2006  and  2005,  was  $9,085  and  $23,750,
respectively,  held in trust and paid to other service providers relating to the
ESOP transaction described in Note 11.

The shares of common  stock owned by the ESOP Trust are voted by the Trustees in
the manner  directed by the ESOP  Committee.  The Trustees,  Howard  Pinsley and
Peggy A. Murphy,  are the  Chairman of the Board,  Chief  Executive  Officer and
President of the Company and Secretary of the Company, respectfully. See Note 11
for additional information regarding the ESOP.

Note 15. Commitments and Contingencies

The Company has entered into standby letters of credit agreements with financial
institutions  primarily  relating  to the  guarantee  of future  performance  on
certain  contracts.  Contingent  liabilities on outstanding  standby  letters of
credit  agreements  aggregated  $246,625 at June 30, 2006.  The Company does not
expect to fund any of the amounts under the standby letters of credit.


24
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 16. Quarterly Financial Information (Unaudited)

                                     First      Second      Third       Fourth
    2006                           Quarter     Quarter     Quarter     Quarter
                                ----------  ----------  ----------  ----------
     Net Sales................. $4,560,574  $5,056,083  $4,677,808  $6,557,105
        Gross profit ..........    880,290     947,360   1,042,265   1,672,174
        Net income.............    217,744     274,260     365,057     700,955

    Net income per share -
     Basic.....................       0.11        0.14        0.18        0.34
     Diluted...................       0.11        0.13        0.18        0.34

    2005
     Net Sales................. $4,730,327  $4,896,741  $4,219,861  $4,981,771
        Gross profit ..........    649,142     772,387     650,890   1,308,938
        Net income.............     60,585     167,032     111,987     639,316

    Net income per share -
     Basic.....................       0.03        0.08        0.06        0.31
     Diluted...................       0.03        0.08        0.06        0.31


Note 17. Stock Split

On December 30, 2005, the Company effected a one-for-one stock split in the form
of a  dividend  of one share of  common  stock  for each  share of common  stock
outstanding. The Company also allocated to treasury an additional share for each
share being held as a treasury  share.  All  references  to the number of common
shares,  shares related to the Company's stock option plan, as well as per share
data in the accompanying financial statements, have been adjusted to reflect the
stock split on a retroactive basis with the exception of the details  describing
the Company's ESOP transaction  which became executed on July 15, 2005 described
in note 6 and "Other Matters".  As a result of the stock split, common stock was
increased and retained earnings was decreased by $504,979.


25
<PAGE>

Item 8.  Changes in and disagreements with accountants on accounting and
         financial disclosure

         None

Item 8A. Controls and Procedures

(a) The Company's  management,  with the  participation  of the Company's  chief
executive officer and chief financial officer,  carried out an evaluation of the
effectiveness  of our  disclosure  controls and  procedures  (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the  period  covered  by this  Annual  Report on Form  10-KSB.  Based on such
evaluation,  our chief  executive  officer  and  chief  financial  officer  have
concluded that our disclosure  controls and procedures  were effective as of the
end of the period covered by this report.

(b) There have been no changes in our internal controls over financial reporting
during the period covered by this report that have materially  affected,  or are
reasonably  likely to materially  affect,  our internal  controls over financial
reporting.

Item 8B. Other information

         None.

                                    PART III

The information called for by "Item 9. Directors,  Executive Officers, Promoters
and Control Persons; Compliance with Section 16(a) of the Registrant", "Item 10.
Executive  Compensation",  "Item 11.  Security  Ownership of Certain  Beneficial
Owners and  Management  and  Related  Stockholder  Matters",  "Item 12.  Certain
Relationships and Related  Transactions" and "Item 14. Principal Accountant Fees
and  Services",  is hereby  incorporated  by  reference to the  Company's  Proxy
Statement  for its Annual  Meeting  of  Shareholders,  (scheduled  to be held on
November 17, 2006) to be filed with the SEC pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.

Item 13. Exhibits

         3.1      Certificate  of  incorporation  and  all  amendments   thereto
                  (incorporated by reference to Exhibit 3.1 to Espey's Report on
                  Form 10-K for the year ended June 30,  2004 and Report on Form
                  10-Q for the quarter ended December 31, 2004)

         3.2      By-laws  (incorporated  by reference to Exhibit 3.2 to Espey's
                  Report on Form 10-Q for the quarter ended March 31, 2004)

         4.1      Amended and Restated Rights  Agreement,  dated March 31, 1989,
                  as amended  February 12, 1999 and  December 31, 1999,  between
                  Espey Mfg. &  Electronics  Corp.  and  Registrar  and Transfer
                  Company  (incorporated  by reference to Espey's Form 8-K dated
                  December 20, 1999)

         4.2      Description  of Capital  Stock  (Incorporated  by reference to
                  Espey's Report on Form 8-K dated October 7, 2005)

         10.1     2000 Stock Option Plan  (incorporated  by reference to Espey's
                  Definitive  Proxy  Statement  dated  December  6, 1999 for the
                  January 4, 2000 annual meeting)

         10.2     Executive Officer contract (filed herewith)

         11.1     Statement  re:  Computation  of Per  Share Net  income  (filed
                  herewith)

         14.1     Code of ethics  (incorporated  by reference to Espey's website
                  www.espey.com)
                  -------------

         23.1     Consent of Rotenberg & Co., LLP (filed herewith)

         23.2     Consent of KPMG LLP (filed herewith)

         31.1     Certification of the Chief Executive Officer pursuant to Rules
                  13a-14(a) and 15d-14(a)  under the Securities  Exchange Act of
                  1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002 (filed herewith)


26
<PAGE>

         31.2     Certification of the Principal  Financial  Officer pursuant to
                  Rules  13a-14(a) and 15d-14(a)  under the Securities  Exchange
                  Act  of  1934,  as  adopted  pursuant  to  Section  302 of the
                  Sarbanes-Oxley Act of 2002 (filed herewith)

         32.1     Certification  of the Chief Executive  Officer  pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002 (filed herewith)

         32.2     Certification of the Principal  Financial  Officer pursuant to
                  18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of
                  the Sarbanes-Oxley Act of 2002 (filed herewith)


27
<PAGE>

                               S I G N A T U R E S


Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                                 ESPEY MFG. & ELECTRONICS CORP.


                                                 /s/Howard Pinsley
                                                 ------------------------------
                                                 Howard Pinsley
                                                 President and
                                                 Chief Executive Officer



/s/Howard Pinsley                                President
---------------------------                      (Chief Executive Officer)
Howard Pinsley                                   September 25, 2006


/s/David O'Neil                                  Treasurer
---------------------------                      (Principal Financial Officer)
David O'Neil                                     September 25, 2006


/s/Katrina Sparano                               Assistant Treasurer
---------------------------                      (Principal Accounting Officer)
Katrina Sparano                                  September 25, 2006


/s/Barry Pinsley                                 Director
---------------------------                      September 25, 2006
Barry Pinsley

/s/Seymour Saslow                                Director
---------------------------                      September 25, 2006
Seymour Saslow

/s/Michael W. Wool                               Director
---------------------------                      September 25, 2006
Michael W. Wool

/s/Paul J. Corr                                  Director
---------------------------                      September 25, 2006
Paul J. Corr

/s/Alvin O. Sabo                                 Director
---------------------------                      September 25, 2006
Alvin O. Sabo

/s/Carl Helmetag                                 Director
---------------------------                      September 25, 2006
Carl Helmetag

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